OPEC leans towards oil cut extension, but non-members need to be in

OPEC oil producers increasingly favour extending beyond June a pact on reducing crude supply to balance the market, although Russia and other non-members need to remain part of the initiative.

The Organization of the Petroleum Exporting Countries is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years. Russia and other non-OPEC producers agreed to cut half as much.

The deal has lifted oil prices, but inventories in industrial nations are rising and higher returns have encouraged U.S. companies to pump more. A growing number of OPEC officials believe it may take longer than six months to reduce stocks.

An OPEC delegate said that “An extension is needed to balance the market. Any extension of the cut agreement should be with non-OPEC.”

OPEC sources told Reuters in February that the group could extend the supply-reduction pact, or even apply deeper cuts from July, if inventories fail to drop to a targeted level.

The group wants stocks in the industrialised world to fall to the average of the past five years.

According to the most recent data, for January, inventories of crude and refined products stood 278 million barrels above this level.

Five other OPEC sources said it was increasingly clear that the market needed more than six months to stabilise but added that all producers – in OPEC plus non-members – had to agree.

An OPEC source from a major producer said that “The ministers will meet in May to decide, but everyone has to be on board.”

OPEC next meets to decide output policy on May 25 in Vienna. There will also be a gathering in May of OPEC and non-OPEC producers, OPEC Secretary-General Mohammad Barkindo said last month.

Another one of the sources said that “Hard negotiations are on the way.”

Russia, the largest of the 11 outside producers working with OPEC, has not publicly said whether it supports extending the supply cut, but is wary about the revival of U.S. shale output due to higher oil prices.

A source from a non-OPEC participant in the deal said, referring to prolonging the output curb that “It’s too early to know whether everyone will agree to this.”